Seeking New Markets, Companies Offer DNA Testing at a Loss

Over the last six weeks, we’ve seen several announcements by companies trying to lure consumers to learn about their genomes. Something they all have in common: they’re losing money doing it, at least for now.

The latest low-cost entrant is Veritas Genetics, a spin-off of Harvard University that said this week that it plans to sequence the complete genomes of individuals for $999.

That makes Veritas the first company to break the much anticipated threshold of a “$1,000 genome.” Mirza Cifric, Veritas’s CEO, confirmed that, initially at least, the new price is less than the cost of actually generating the data, when equipment and chemical supplies are included.

It’s a bit unclear what the true cost of sequencing a genome is. What is known is that large fee-for-service sequencing operations in the U.S. and Asia currently charge between $1,600 and $1,800 to decode a person’s genome (see “Is It Really Only $1,000 to Sequence a Genome?”).

So why do companies seem to think it makes sense to drop the price of DNA, damn the losses? As with so many startups before them, one idea appears to be to get as many users as possible and work out the business model later. Some entrepreneurs are convinced that one way or another, people’s DNA will end up online and they’ll access it via mobile software that helps them track health risks, choose what to eat and what drugs to avoid, and perhaps even receive ads or recommendations tailored to their genes. It’s notable that the cofounder and chief technology officer of Helix, the planned genetic app store backed with $100 million from investors, is Scott Burke, the former head of advertising technology at Yahoo.

Veritas’s $999 offer currently extends to members of the Personal Genome Project, a quasi-academic effort launched by Harvard in which people agree to get their genomes sequenced and openly publish the data. Cifric says the company plans to eventually offer the service to the public at large along with a mobile app that will allow them to explore the meaning of their DNA.

The business model, he says, is “to do interpretation of the whole genome and provide genetic counseling on demand.” With added services, he says, the product will be profitable.

The bet is that low prices will draw big crowds of consumers to the genome. Companies are counting on the market for consumer DNA data being highly “elastic.” In elastic markets, price drops are met with a corresponding increase in buyers—and higher profits overall. As Henry Ford once said of the Model T, “every time I reduce the charge for our car by one dollar, I get a thousand new customers.”

But other markets are inelastic. Slash the price of brain surgery, and you won’t get any more takers. And it’s still not clear which type of market consumer genomics truly is. Just ask your friends and family how much they’d pay to know their genes. Some people don’t want to know, even if the information were free.

Yet there’s also evidence that, at a certain price, consumers will opt in. By late 2013, for instance, the Silicon Valley company 23andMe had managed to sign up a couple hundred thousand users for simpler, $99 genetic health tests. That was before its health reports were barred by the U.S. Food and Drug Administration as unreliable and possibly dangerous (it still sells DNA ancestry tests). Newer efforts, like that of Veritas and Venter, toe the line with regulators by asking a doctor to prescribe the DNA sequencing and by offering a combination of computer-generated reports and direct genetic counseling.

Cifric believes the emerging market for genome data will be driven by healthy lifestyles and disease prevention. He gave the example of skin creams and foods tailored to people’s DNA. “People are interested in ways of incorporating this information in their life that is not all about disease risk. We talk about ‘vitality’ as being the driving force in the future,” he says.

Making money on prevention won’t necessarily be easy. Last month, Venter’s company teamed up to offer DNA data through a health insurer in South Africa named Discovery, which already has extensive prevention programs. But if you thought U.S. health insurers would be all over the genome as well, you’d be wrong, Venter says. That’s because it’s not necessarily profitable to keep people healthy. “It’s not clear whether the U.S. health insurance agencies will want or be able to use this information,” Venter says. “They don’t own their clients long enough to invest in the long-term health of consumers.”

A spokesperson for Venter’s company said the company believes it can sequence DNA profitably if enough people sign up.

One result of these trends, says Cifric, is that genome analysis is fast becoming an expense that consumers will take on directly, rather than waiting for insurance to pay. This summer, for instance, Veritas launched a test for the BRCA gene, associated with breast cancer risk, and priced it at $199. Cifric says customers in Europe are ordering it as a way to bypass waiting lists at government-run health clinics.

That also helps explain why companies are willing to sell sequencing for less than it costs them to do. “It’s not a race to the cheapest price,” says Cifric. “It’s the opportunity to make things affordable out of pocket.”